Brexit offers unexpected bonus for UK firms

LONDON: For United Kingdom Plc, the sting of Brexit comes with an unexpected bonus.

With no effort on their part, the biggest British businesses may see pension deficits that have burdened them for years be practically wiped out if long-term bond yields rise 50 basis in the next year and they budget for slowing gains in life expectancy, estimates of consultancy Mercer showed.

The Bank of England (BoE) is expected to raise interest rates by that amount by November 2018 and it remains to be seen if that affects long-term bonds.

That will give executives one less thing to worry about as they prepare contingency plans in case Britain can’t strike a Brexit deal ,

Companies like BT Group Plc and Marks & Spencer Group Plc, whose liabilities are almost double their market value, will also remove a stigma that has contributed to years of under-performance in their shares.

“If you bought a basket of these stocks you would probably make money from here,” said Andrew Millington, the acting head of UK equities at Aberdeen Standard Investments.

The idea that corporate Britain could fill holes in staff retirement budgets without slashing dividends would have been unthinkable even a year ago.

The shortfalls of FTSE 350 companies had soared to a record £165 billion (RM916.17 billion) as the BoE cut rates to spur the economy after the Brexit vote, throttling pension income that relies on higher bond yields.

The gap dropped to an 18month low of £65 billion last month, partly because pension fund managers made more on their equity investments as the FTSE 100 rallied eight per cent in the past year.

Not all investors have noticed the U-turn. The 14 firms with the biggest liabilities relative to market value have trailed the FTSE 350 by 10 percentage points since Brexit, according to data compiled by Bloomberg and RBC Capital Markets. Bloomberg